July 8, 2009 (FinancialWire) (By Dr. Joe Duarte) — The Oil Service HOLDRS Trust (NYSE: OIH) and  the S&P 500 SPDR ETF (NYSE: SPY) are both near critical long term decision points.

As earnings season approaches traders are busy squaring positions, which means that they’re taking profits where they have them and selling things that they’ve bought that haven’t done well. The net result is weakness across the board in the stock market.  

The S&P 500 closed just above 880 on Tuesday, just below its 200-day moving average, which is a negative for the overall market. Much of the weakness, though, came from the energy stocks, which have been taking a beating due to lower oil prices.

Oil service stocks are often the bellwethers for the oil and energy markets. And OIH has fallen nearly 50% from its June 11 highs after bottoming in March.

The key is what happens near 90, as that’s the area where the 200-day moving average and the 50% retracement of the March-June rally are close together. That means that there are lots of buyers and sellers that are looking to make a move when prices reach that general area, and that’s where the real trend deciding battle will take place.

What happens to oil service stocks is important, since they tend to lead the trend in the price of crude oil, as well as other energy stocks.

Oil prices have been falling lately due to decreasing demand, and the lack of external factors moving prices. For one thing, this has been a very light hurricane season. Hurricanes, such as Katrina have in past years led to higher prices.

The perception that the global economy is not out of the woods, and the uncertainty before earnings season is being boosted by the political climate in Washington, which continues to squeeze free market principles and continues to threaten with higher taxes.    From a technical standpoint, oil service stocks are very oversold. That’s a factor that may favor the bulls. Still, a major break below 90 for OIH would be very negative for the entire energy complex.  The S&P 500 has support just below Tuesday’s close.  The outlook is not particularly encouraging for stocks at this point.

The Investrend Events Calendar showcases FTI, APC at Morgan Stanley Energy Deepwater Conference.

The Investrend Money Index is an indicator of the depth of market direction or indirection. While not always including the same stocks, the NYSE/NASDAQ 50 Most Actives indicate the direction in which the mass of money is flowing. Last session’s trading showed 12 advancers versus 37 decliners and one unchanged. Advancers were led by Cit Group Inc (Del) (NYSE: CIT) up 12.50%. Decliners followed Amer Intl Group New (NYSE: AIG) down 15.07%, Discover Fin Svcs (NYSE: DFS) down 10.76%, Level 3 Communications, Inc. (NASDAQ: LVLT) down 8.61%, Vale S.A. Ads (NASDAQ: VALE-P) down 8.10%, E*Trade Financial Corporation (NASDAQ: ETFC) down 7.81%, Vale S.A. Ads (NASDAQ: VALE) down 7.24%, Ultra Real Estate Pr (NYSE: URE) down 7.00%.

Investrend Website of the Day: http://science.discovery.com/

Quote of the Day: “Charity is injurious unless it helps the recipient to become independent of it.” John D. Rockefeller, Sr.

Today is: SCUD Day.

Happy Birthday: Frederick William Seward, John D. Rockefeller, George W. Romney, Nelson A. Rockefeller, Jai Johanny Johanson, Jeffrey Tambor, Kim Darby, Wolfgang Puck, Anjelica Huston, Kevin Bacon, Toby Keith, Michael Weatherly, Beck, Jaden Smith.

Today in History: Vasco da Gama set sail in 1497 on the first direct European voyage to India. In 1680, the first confirmed tornado in America killed a servant at Cambridge, Massachusetts. The Declaration of Independence was read aloud in 1776 in Philadelphia, Pennsylvania. The Wall Street Journal premiered in 1889. The shooting death of crime boss Soapy Smith in 1898 released Skagway, Alaska from his iron grip. The Dow Jones Industrial Average reached its lowest level of the Great Depression, bottoming out at 41.22 in 1932. Reports were broadcast that a UFO crash landed in Roswell, New Mexico, in 1947.

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